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It was a strange and narrow market in March, almost a reverse image of the preceding month. The S&P 500 gained 2.6%, the DJIA 3.6%, but very few market sectors outperformed these benchmarks.

The stock market might still go higher, but at least some elements of the liquidity thesis are no longer quite as valid as they were even a month or two ago. More and more, the liquidity driven case is narrowing down to the waves of cash rolling across the Pacific.

A number of factors have, in recent months, combined to create strong Japanese demand for U.S. equities, especially the known recognizable U.S. names. But keep in mind, attitudes and current conditions can change almost overnight.

Where else can all the world’s liquidity go, other than into the stock market? After all, bonds are not attractive. It has to flow into stocks, doesn’t it?

We were not planning to publish the Leuthold Group’s Histographs this issue. But clearly a number of clients have a high level of interest in this work. We had a large number of calls this last month requesting updates. So, here they are again.

In this issue, our equity portfolio is moving back toward value. Herein we explain why and present the detailed screening results from our most recent set of undervalued screens.

As we enter April, our view of the bond market is increasingly cautious. Very short-term, a snap back is expected after the rocky action in recent sessions, but then what? This issue we are pulling in our horns, reducing long bond exposure.

Money: The Report Card of Life…An Interesting New Market Index from Frank Russell and Company…Fearless Forecast - And You Thought We Were Kiddin’

Our Major Trend Index, after remaining neutral for all of February, shifted into negative territory with the March 2 calculation. Immediate defensive action is being taken in our two asset allocation models.

The S&P 500 gained 3.7% in February, the DJIA 3.1%, but the majority of market sectors outperformed these benchmarks. Secondary stocks, especially technology issues, moved well ahead of the popular averages in the last half of the month.

Recently, the majority of questions have, not surprisingly, concerned the liquidity driven market thesis. In second place are questions relating to today’s market and 1929.

Updated histographs of P/E multiples, book value ratios and yields are presented this issue, as well as a new histograph of cash flow ratios.

The bond market surprised a lot of the players in February. When the T-bond futures broke 98 around mid-month, a number of traders thought it was the beginning of a significant decline. But, as you may recall from last month, this publication did not feel such a breakdown would be significant.

Several years ago, this publication raised a number of questions concerning the validity of the then trendy concept of the “financial department store”. Today, some of these grand synergies seem to be coming apart. Did it all ever make much sense? And where have all the real stockbrokers gone?

Overall results for the month indicate Technology was the place to be, but most of the big technology gains came in the first half of the month.

Inflation sensitive issues are being added to our equity model as a distinct theme, a new tactical play. Although we are not projecting a significant pickup in inflation in 1987, we are coming to believe that Wall Street will mistakenly believe inflation is re-igniting.

It has been only two months since we last published our “Histographs” covering stock market P/E’s, dividend yields and book value ratios. But, 1987 estimates are now included and of course, the stock market has made a big move. It is time for an update.

No, we do not expect to see inflation over 3% by the end of 1987 or even in 1988. Actually, deflation seems more probable. But from the bond and stock market investors’ standpoint in coming months, inflation perceptions are expected to become more important than reality.

Self-examination is always good for the soul, so each year, time is taken to look back over the preceding year or so, critically reviewing the significant studies, portfolio shifts and recommendations appearing in this publication. Including where we were right....and where we were wrong.

Each year, along about February, this publication makes a series of “Fearless Forecasts,” frivolous flights of foolishness and fantasy that sometimes come remarkably close to reality.